“Affordability” for national governments like the US, UK, Canada, Japan, Australia is always in terms of real resources (iron ore, agricultural capacity, water supply, labor supply, etc.) and never “money”. If you still do not understand this concept, you will soon. Forty years of neoliberalism and nonsensical mainstream economic policy errantly focused on the finances of these governments, which do not possess hard financial constraints, while ignoring their real productive capacities, leaving vast resources idle. Persistent recessions, high unemployment rates, expanding income inequality, high private debt levels and financial instability have been the end results of these policies and so, political unrest is rising as world populaces are no longer willing to tolerate these deplorable conditions. At the root of the problem is the erroneous belief that these governments can run out of “money”. That incorrect viewpoint causes you to miss the reality: US Dollars are infinite. Real resources are finite.…Simple argument to pass along your out of paradigm family, friends and acquaintances.
An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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I have not studied economics, I have just locked a bit up from a lay Man's point of view. And this site helps.
ReplyDeleteDespite my limited knowledge of economics I can see that there is no need for involuntary unemployment. If the government pays a small wage, with money created at its treasury, people will work for it.
I saw a homeless man the other day who he looked appalling, and in need of help, but the local authority is probably cash strapped. With government money people cold run a home to look after such people. Maybe help to get them of drugs and booze, and integrate them back into society.
This would give people jobs as well as help vulnerable people in the community.
People create value when they work. Then the money then gets its worth. When people get up and work they create value, so the money they are paid gets it value that way.
There is nothing to stop people from working, most want to work, and being at home all the time without enough to do or enough money is soul destroying.
Then the money that people get paid by the Job scheme gets into the wider community stimulating sales and therefore the economy. If only the little shopkeepers of England knew, that voting for Conservative austerity was damaging they businesses, and even damaging capitalism, the system they say they say they love.
Now we get into the subject of taxation and inflation. But professors writes books on this, and conferences filled with academics speak for hours on about this. I can't do it justice here.
Such a good article and so concise too. When the government creates £1000 and spends it the money doesn't die, it can circulate endlessly generating sales and work passing from one person to another until the government removes it via tax. And it only needs to do that when inflation starts. The is no need for austerity. What creates our wealth is our technology and resources. Our capacity for work is only restrained by lack of currency.
ReplyDeleteThere is a UN declaration on the right to work. In the US, there is a piece of legislation known as the Humphrey-Hawkins Act. Both are ignored.
ReplyDelete"When the government creates £1000 and spends it the money doesn't die, it can circulate endlessly generating sales and work passing from one person to another until the government removes it via tax."
ReplyDeleteMoney certainly doesnt circulate "endlessly", they circulate til they get into the hands of the wealthy and foreigners who just save it. Thats what TSY CDs are, Govt spending that gets saved by some entity and not spent & taxed.
This is one of the problems with just growing the deficit without any structural reforms to address the rent\income inequality problem. Because more and more of the nation's yearly income (GDP) goes to the .1% and foreigners (via the trade deficit), more purchasing power gets saved and a smaller amount gets respent fewer times (smaller fiscal multiplier). SO you can deficit spend 10-15% of GDP probably and because so much of that purchasing power gets soaked into rich people's and foreigner's savings so fast, it has comparatively little impact on macro outcomes to say the economic structure of the 1950s-60s.
IOW, Different levels of deficits have different fiscal mulitpliers given the institutional structures of the economy. Nothing is ever constant. Which is why economic theory is such garbage.
The impact of a 5% of GDP Govt deficit cant be easily predicted precisely because the distributions of money and power are so important to the outcome. And one the primary things that orthodox econ ignores is money and power.
Circulation matters.
So I learn a bit more, thank you, Auburn.
DeleteIndeed, the unsustainability of our system comes from lack of sufficient circulation. The obsession with growth is because we insist on keeping subsidizing wealthy people hoarding habits.
ReplyDeleteAnd if you think it's bad financially, it's even worse from a material point of view, as the difference between resources consumed per income bracket is brutal (this is more worrisome than paper, ultimately).
Gandhi was right ultimately.
Even worse, most of the accumulation results but from rent extraction rather than productive contribution.
ReplyDeleteAsset "appreciation" that is really inflation compounds this because the that which is not consumed or invested productively goes into asset accumulation, which drives up asset prices.
This was actually the intention of the Fed, to create wealth effect that the Fed assumed would increase productive investment and consumption. Never happened and asset values are still inflation while the real economy is deflating.